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Is less information better information? Evidence from the credit rating withdrawal

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  • Federica Salvadè

    (Paris School of Business)

Abstract

This paper examines the stock market reaction to two different types of credit rating withdrawals by Moody’s. The first type of withdrawal occurs when a firm stops being rated. This happens, for example, when firms choose to no longer pay for a rating. We find that the stock market reaction depends on the information which remains available. The second type of withdrawal is due to Moody’s policy of removing the issuer rating and keeping the corporate family rating for the same firm. The corporate family rating is usually more favorable than the issuer rating. The paper shows that the removal of the issuer rating leads to positive stock market reaction. We conclude that lower disclosure of rating information is not necessarily associated with higher cost of equity. Instead, our findings emphasize the incentive for firms to engage in ratings shopping by publishing only the most favourable ratings.

Suggested Citation

  • Federica Salvadè, 2018. "Is less information better information? Evidence from the credit rating withdrawal," Review of Quantitative Finance and Accounting, Springer, vol. 51(1), pages 139-157, July.
    • Handle: RePEc:kap:rqfnac:v:51:y:2018:i:1:d:10.1007_s11156-017-0666-5
    DOI: 10.1007/s11156-017-0666-5
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    More about this item

    Keywords

    Credit rating withdrawal; Disclosure; Split ratings; Stock price;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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